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EDITORIAL: Crocs and roaches

EDITORIAL: Crocs and roaches

I would suggest the PC and Internet boom has been responsible for the development of more business models than any other era in the history of commerce. Unfortunately, not all will survive the apocalypse.

If you consider everything since the first family groups bartered fish for nuts, the fourth quarter of the 20th century stands out as a time of frenzied expansion in the ways that organisations conduct business. This fleeting moment in history saw a rash of entrepreneurial tangents, many of which are now struggling to survive the economic ice age that immediately followed.

This week - with troubling reports about pure-play e-tailer E-Store and affinity model PC seller Virtual Communities - we uncover two more business models that are under threat due to the current economic climate.

Already we have seen a plethora of sometimes farcical dotcom models rise and fall, collectively burning up billions in VC funds along the way. The survival rate of companies that embraced the Internet economy in the belief they could develop business models around advertising revenue or pay-for-use Web sites is low.

Even in the channel we have seen the rise and fall of business models, such as the zero-margin PC and the free PC business model. The former model was to be sustainable through the value-adding of services and the collecting of rebates based on turnover, while the latter relied on fixing the buyer to a bundled ISP contract.

Perhaps Johnson Wang's failed Edge Technology and eisa operations are the best respective examples of these business models, which were sustainable in times of high demand but crippled by a slowdown.

E-Store is one of the few surviving e-tailers that relied 100 per cent on online sales, but now its future looks very gloomy. It is now evident that online trading is not a business model that can be sustained without the assistance of "old world" bricks and mortar.

Certainly this is the case under the current economic conditions and with the Internet as a platform for commerce still in its infancy. It appears the only way businesses can utilise the Internet as a viable marketplace is by cross-selling between bricks and clicks.

Harris Technology is a classic channel example of how Web sites can be used to drive traffic to physical stores and call centres, and how those stores and call centres can in turn leverage Web site sales.

Meanwhile, the affinity model adopted by Virtual Communities - where the company markets low-cost PCs to large community groups such as the employees of large corporates - was always going to need a rethink in a sales slump.

The one model that does appear to be sustainable through extended downturns is the small reseller. Sure, belts have to be tightened, but it is these businesses that have the ability to instantly bring many overheads to a grinding halt.

If they have been around for a while, they are also likely to have a range of ongoing customers who may not be splashing out at the moment but who still need ongoing supplies, support and hardware add-ons.

Sole trading or small retail operations represent one of the oldest and most traditional business models there is. It is a survivor. It is the crocodile or the cockroach of business models and will live on after many others become extinct.

Small resellers remain the lifeblood of the channel. The next wave of technology adoption is largely predicted to come from small-to-medium businesses, and the vast majority of them deal with small-to-medium resellers.


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